Analysis: Why healthcare stocks underperformed in 2023
Healthcare stocks have underperformed in the broader market despite all the hype around new medications, company mergers, and post-pandemic transitions. Traditionally, the healthcare sector is seen as a defensive position, but has Big Tech and AI stolen investors' eyes? Yahoo Finance Reporter Jared Blikre joins the Live show to break down the action surrounding healthcare and pharmaceutical stocks, giving insight into the underperformance of this once-safe bet sector.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live. Yahoo Finance will be providing more analysis on the healthcare industry in its week-long special Healthcare: Industry Checkup.
Video Transcript
BRAD SMITH: Well, health care stocks certainly have been in focus over 2022 and 2023. But it's been a different story in 2023. They've underperformed the broader market. But with all the hype around the sector, doesn't that seem strange? Has big tech and the growth of AI stolen the limelight? As Yahoo Finance's Health Care Week ramps up, Jared Blikre gives us the context that we need. Jared.
JARED BLIKRE: Brad, it's as simple as this. Last year, we were in a bear market. This year, we're in a bull market. Health care, especially with some of the bigger names, typically a defensive class of stocks. So not surprisingly, they are the third worst this year behind real estate and utilities and just ahead of staples, all of those defensive. Now, it's not always defensive when you consider all the names in the sphere. It's mainly the large-cap ones. But we do have some growth stories this year.
This is what's happening today, kind of a sea of red. But if you take a look at the year-to-date, you can see Eli Lilly and Novo up 60% and 46%, respectively. These are incredible growth stories, of course, around the diabetes treatment and GLP-1 drugs that have been based off of them. But for the most part, we're seeing a lot of red elsewhere. Last year, it was a different story. But let me just show you what's happened in the health care sector over the last two years.
This is the XLV SPDR Fund. This covers large-cap health care. And you can see it's a bunch of sideways action here going back to two years ago. However, I want to show you another chart. If you take the performance of the health care industry and you divide it by the S&P 500, its benchmark, you actually see on a relative basis, we are at the lowest prices going back to the beginning of 2022. So that's almost two years. So suffice to say, health care has been really underperforming the market.
But not for everything. As I said, Eli Lilly up 60%. Novo up 46%. I was taking a look at some of the top stocks in the S&P 500. This is everything that's up 50% or more or thereabouts. You see Alphabet right at the threshold down here. If I sort by performance, you can really get a feel of what has been hot this year. NVIDIA, the AI story at the forefront, that's up 234%. Meta also AI.
Royal Caribbean, well, that's another industry. Consumer discretionary up 93%. But where does Lilly fit in? Right there, up a satisfying 61%. But that is the only health care stock among these winners here. So suffice to say, health care has taken a little bit of a backseat this year. But we definitely have some outperformers.
